FISCAL CRISIS: $120M Shortfall; No Reserves

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Guam – The Governor’s office released a statement this afternoon [Tuesday] revleaing that there is not enough money to fund the Government.

The release states:

Not Enough Cash to Fund the Government; Chief Fiscal Advisor to make recommendations to the Governor, solutions forthcoming

[NOTE: The information contained here is based off a cash flow model rolled over from the previous administration at the Department of Administration. The current fiscal team is currently validating those numbers and reconciling cash accounts.]

The government’s financial situation is becoming more bleak, but the Governor is committed to solving the problems. Today the Director of Revenue and Taxation reported to the Governor that not a single tax refund has been paid in four weeks. The average wait for a tax refund now is three to four years.

This is indicative of the government’s cash position, despite the budget models the previous administration used to justify spending. Governor Eddie Baza Calvo has directed the fiscal team to operate fiscal policy and to relate such to senators and the media in terms of cash, rather than budget. The government’s budget deficit is different from its ability to actually pay for its operations and its bills. This is why:

In a fiscal team meeting this afternoon, the Director of Administration presented the government’s cash flow projection, and its bleak projection for the collection and spending of cash.

Floated Checks, Negative Cash Balance

The government had a negative $2 million cash balance going in to Fiscal Year 2011. This means the government of Guam floated $2 million in checks in the first cycle of the fiscal year last October.

Nearly $1 Billion to be Paid This Year

Including all funds of the government of Guam (General Fund, transfers-in, federal funds, special funds, etc.), the government this year is expected to receive $965.0 million and spend $913.8 million. This already is a misnomer because $42 million of the remaining $51.2 million is from Section 30 monies, which are supposed to be obligated for the following fiscal year. Unfortunately, the remaining balance of $6 million out of the $1 billion is only a fraction of the amount needed to pay the unbudgeted obligations of the government due this year.
 

Possibly $120 Million Short on Cash

General Fund payables now are at $40 million. The ‘unprogrammed liabilities,’ which are the cash needed for liabilities that were not factored into the cash flow projection, now are estimated to be $126.8 million. That means, if the  these liabilities are required to be paid immediately, there will be insufficient cash. The government may be short about $120 million in cash to pay for the operations of the government. The only four options, based on this model, are to cut $120 million in expenditures, raise $120 million in revenues, borrow $120 million in bonds, or a combination of any of these three.

“We can’t afford it.  If these were mandated to be paid today, we wouldn’t have the cash for it,” Gener Deliquina, DOA director, said. “The list of options is getting shorter, and I know the Governor does not want to see payless paydays or a shutdown.”

No Reserves

To exacerbate the fiscal situation, the previous administration released whole allotments for the first quarter of this fiscal year (Oct. 1 to Dec. 31, 2010). They did not reserve the three-percent in allotments. This means, despite the recognized fiscal situation since last summer and the knowledge of the impending shortfall, the government was spending at its full rate.

“We cannot afford to continue spending at this rate. We’re living well beyond our means,” Benita Manglona, budget director, said.

Chief Fiscal Advisor

The fiscal team this afternoon turned over this information to the Governor’s Chief Fiscal Adviser, Bernadette Artero. She will be making recommendations to the Governor shortly.

“I assure the people and our creditors that everything is on the table,” Bernadette Artero said. “When the Governor takes action, he will be swift and decisive.”

Expenditures v. Spending of Cash

Revenues are the funds that pay for government operations. Expenditures mean the obligations and commitments of the government, not just the cash that goes out. A deficit is created when these obligations exceed the revenues that come in. When government does not have enough cash, the government starts delaying payments to vendors and to government agencies, including public schools and the hospital. The only solution to fix the problem is to balance revenues and expenditures, so there is enough cash to pay for all the expenditures.

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show details 4:48 PM (9 minutes ago)
———- Forwarded message ———-
From: Troy Torres <troy.torres@guam.gov>
Date: Tue, Jan 11, 2011 at 4:47 PM
Subject: here
To: Clynt Ridgell <clynt@spbguam.com>

Not Enough Cash to Fund the Government

Chief Fiscal Advisor to make recommendations to the Governor, solutions forthcoming

 

FOR IMMEDIATE RELEASE

January 11, 2011

 

NOTE: The information contained here is based off a cash flow model rolled over from the previous administration at the Department of Administration. The current fiscal team is currently validating those numbers and reconciling cash accounts.

 

The government’s financial situation is becoming more bleak, but the Governor is committed to solving the problems. Today the Director of Revenue and Taxation reported to the Governor that not a single tax refund has been paid in four weeks. The average wait for a tax refund now is three to four years.

 

This is indicative of the government’s cash position, despite the budget models the previous administration used to justify spending. Governor Eddie Baza Calvo has directed the fiscal team to operate fiscal policy and to relate such to senators and the media in terms of cash, rather than budget. The government’s budget deficit is different from its ability to actually pay for its operations and its bills. This is why:

 

In a fiscal team meeting this afternoon, the Director of Administration presented the government’s cash flow projection, and its bleak projection for the collection and spending of cash.

 

Floated Checks, Negative Cash Balance

The government had a negative $2 million cash balance going in to Fiscal Year 2011. This means the government of Guam floated $2 million in checks in the first cycle of the fiscal year last October.

 

Nearly $1 Billion to be Paid This Year

Including all funds of the government of Guam (General Fund, transfers-in, federal funds, special funds, etc.), the government this year is expected to receive $965.0 million and spend $913.8 million. This already is a misnomer because $42 million of the remaining $51.2 million is from Section 30 monies, which are supposed to be obligated for the following fiscal year. Unfortunately, the remaining balance of $6 million out of the $1 billion is only a fraction of the amount needed to pay the unbudgeted obligations of the government due this year.

 

Possibly $120 Million Short on Cash

General Fund payables now are at $40 million. The ‘unprogrammed liabilities,’ which are the cash needed for liabilities that were not factored into the cash flow projection, now are estimated to be $126.8 million. That means, if the  these liabilities are required to be paid immediately, there will be insufficient cash. The government may be short about $120 million in cash to pay for the operations of the government. The only four options, based on this model, are to cut $120 million in expenditures, raise $120 million in revenues, borrow $120 million in bonds, or a combination of any of these three.

 

“We can’t afford it.  If these were mandated to be paid today, we wouldn’t have the cash for it,” Gener Deliquina, DOA director, said. “The list of options is getting shorter, and I know the Governor does not want to see payless paydays or a shutdown.”

 

No Reserves

To exacerbate the fiscal situation, the previous administration released whole allotments for the first quarter of this fiscal year (Oct. 1 to Dec. 31, 2010). They did not reserve the three-percent in allotments. This means, despite the recognized fiscal situation since last summer and the knowledge of the impending shortfall, the government was spending at its full rate.

 

“We cannot afford to continue spending at this rate. We’re living well beyond our means,” Benita Manglona, budget director, said.

 

Chief Fiscal Advisor

The fiscal team this afternoon turned over this information to the Governor’s Chief Fiscal Adviser, Bernadette Artero. She will be making recommendations to the Governor shortly.

 

“I assure the people and our creditors that everything is on the table,” Bernadette Artero said. “When the Governor takes action, he will be swift and decisive.”

 

Expenditures v. Spending of Cash

Revenues are the funds that pay for government operations. Expenditures mean the obligations and commitments of the government, not just the cash that goes out. A deficit is created when these obligations exceed the revenues that come in. When government does not have enough cash, the government starts delaying payments to vendors and to government agencies, including public schools and the hospital. The only solution to fix the problem is to balance revenues and expenditures, so there is enough cash to pay for all the expenditures.

 

Please call Troy Torres at 486-8887 for more information.

 

-30-



Troy Torres
Director of Communications
Office of the Governor of Guam
671.475.9304 (o), 671.486.8887 (m)

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